Question

Magnon Carriage Company offers guided horse-drawn carriage rides through historic Edmonton. The carriage business is highly regulated by the city. Magnon Carriage Company has the following operating costs during April: (Click the icon to view the operating costs.) During April (a month during peak season) Magnon Carriage Company had 13,600 passengers. 75% of passengers were adults ($23 fare) while 25% were children ($15 fare). Requirements 1. Prepare the company's contribution margin income statement for the month of April. Round all final figures to the nearest dollar 2. Assume that passenger volume increases by 20% in May. Which figures on the income statement would you expect to change, and by what percentage would they change? Which figures would remain the same as in April?

Answer 1

Solution:
Part 1		Magnon Carriage Company
		Contribution Margin Income Statement
		For the month Ended April 30
		Particulars	$
		Revenue (13600*.75*23)+(13600*.25*15)	$                 285,600
		Less Variable Expense:
		Fees paid to Quebec City	$                  (57,120)
		Cost of souvenir set of postcards	$                  (12,920)
		Broker Fees (13600*.6*1.8)	$                  (14,688)
		Carriage Driver Expense	$                  (43,520)
		Contribution	$                 157,352
		Less Fixed Expense:
		Monthly Depreciation	$                    (2,300)
		Leasing & Boarding the horses	$                  (52,000)
		Monthly Payroll	$                    (8,300)
		Marketing, website, telephone, & other	$                    (7,600)
		Net profit	$                   87,152
Part 2	If number of passengers increased by 20%, Therefore New number of passengers = 13600*1.2= 16320
		Magnon Carriage Company
		Contribution Margin Income Statement
		For the month Ended May 30
		Particulars	$ (April)	$ (May)	Whether Increase or Same?	% of Increase
		Revenue (16320*.75*23)+(16320*.25*15)	$                 285,600	$       342,720	Increased	20%
		Less Variable Expense:
		Fees paid to Quebec City	$                  (57,120)	$        (68,544)	Increased	20%
		Cost of souvenir set of postcards	$                  (12,920)	$        (15,504)	Increased	20%
		Broker Fees (13600*.6*1.8)	$                  (14,688)	$        (17,626)	Increased	20%
		Carriage Driver Expense	$                  (43,520)	$        (52,224)	Increased	20%
		Contribution	$                 157,352	$       188,822	Increased	20%
		Less Fixed Expense:
		Monthly Depreciation	$                    (2,300)	$          (2,300)	Same	-
		Leasing & Boarding the horses	$                  (52,000)	$        (52,000)	Same	-
		Monthly Payroll	$                    (8,300)	$          (8,300)	Same	-
		Marketing, website, telephone, & other	$                    (7,600)	$          (7,600)	Same	-
		Net profit	$                   87,152	$       118,622	Increased	36%
		Conclusion: If number of passengers are expected to increase by 20%, the revenue and all the variable expenses are expected to increased by 20% and all the fixed expenses will be same.